Rolls-Royce Holdings plc · LSE:RR.

Rolls-Royce — Investor Day (June 2018)

112 slides from Rolls-Royce's investor day presentation, Jun 15, 2018

Slide 1: Capital Markets Event
Capital Markets Event 15 June 2018 Capital Markets Event June 2018 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 4: Agenda for today
Agenda for Introduction Warren East today Power Systems Andreas Schell Restructuring Harry Holt Coffee Break Delivering Returns Stephen Daintith Closing Remarks Warren East 4 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 5: Key messages
Key messages Power Fundamental Delivering the Systems Restructuring Returns  Example of a  Change required  Peak investment business in phase complete transformation  Preparation complete  Narrowing the  Improved returns  Leadership team performance gap already delivered primed  Ambitious me
Slide 6: Trent 1000 update
 Unacceptable level of customer disruption Trent 1000  Closely working with affected airlines update Initial inspections MRO capacity Permanent Fix complete (Pack C) <50 AOG 3x Q4 2018  Peak AOG now  Trebled maintenance  Acceleration of capacity permanent fix for  Repeat inspection compressor
Slide 7: Trent 1000 update: financial impact
Trent 1000 / 900 in-service cash costs 7 March 15 June 2017 2018 Guidance 2018 Guidance Trent 1000 update Financial impact £170m • Mitigations offset incremental cost • FY18 FCF guidance unchanged “broadly double” ~£100m Pack Better AoG, incrementally C&B MRO response higher  Actions already underw
Slide 9: Initial transformation completed
Initial transformation Completed our transformation programme originally outlined in November 2015 completed Achieved top end of our original estimates Achieved Simplicity £200m Progress, more to follow Run-rate cost savings at top end of previous guidance 9 Capital Markets Event - June 2018 © 2018
Slide 10: Today we're at a pivotal moment for Rolls-Royce
Today we’re at a pivotal moment for Rolls-Royce “Started laying foundations immediately” 01 02 03 04 05 Stabilised Delivered a Brought new Started Established businesses ramp-up in products to portfolio a new widebody market restructuring leadership production team capacity Transformation c.300 to c
Slide 11: Restructuring
Restructuring  Simpler, leaner and more agile  Net savings of £400m by end of 2020, implementation costs of c.£500m  Proposed reduction of 4,600 FTEs  Culture change through pace, simplicity, efficiency and empowerment  Driving improving returns  Transforming our business to support our world-
Slide 12: Longer term context
Generate. . . Longer term 6 new engines context developed ~£11bn Mid-term invested in R&D and capex ambition Pioneered Total Care product pre 2000 2000 2010 2018 Exceed £1 per large engine share of free ~14% ~35% market share cash flow new engines on 10% Total Care packages >90% annual large ~150 en
Slide 13: Defining our ambitions
Defining our ambitions Faster, more agile to focus on customers Build a simpler Three high- Create or Be the business performing partner world’s leading with a true businesses in the best industrial performance each delivering technology technology culture materially company improved returns Mid-ter
Slide 14: Our resources
To achieve this Our resources: we need to optimise  People - develop a healthy organisation culture our resources  Assets – deliver sustainable & improved returns  Capital – disciplined allocation 14 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 15: Structure to enable change
Structure to enable change “Creating the conditions for the businesses to solve the problems themselves” Much smaller  Significantly Civil light-weight Aerospace reduced central Head Office costs  Empowered businesses, more Power Defence control of own costs Systems  Shared vision and clear accou
Slide 16: Accelerating culture change
Accelerating culture change “Now is the time for fundamental change” Pace Simplicity Efficiency  Empowering  Clearer  Minimal framework accountability duplication 16 Capital Markets Event - June 2018 © 2018 Rolls-Royce Empowerment
Slide 17: Will improve productivity and efficiency
Will improve productivity “Greater pace & simplicity leads to more and efficiency productive use of our resources” Efficiency  Overhead efficiency - headcount reduction of 4,600  Capital efficiency – improved investment rigour  Operational efficiency – product cost reduction, optimisation of capa
Slide 18: What success will look like
What success will look like “The leading industrial technology company” Retaining & attracting Disciplined investment in the best people innovative technology Strong financial Market performance leadership 18 Capital Markets Event - June 2018 Efficient structure & operations © 2018 Rolls-Royce
Slide 19: Andreas Schell, CEO Rolls-Royce Power Systems
Andreas Schell CEO, Rolls-Royce Power Systems Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 21: Power Systems agenda
Agenda Power Systems Overview Driving change Growth strategy 21 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 23: Operational profile
Corporate Routes to market People Factories Sales partners Direct Operational profile ~10,000 11 in 5 countries 140 50% OEM 25% Annual unit sales Authorised distributor 25% dealerships ~25,000 units >500 Products Customers & Service Key engine Use in Installed Service types sub-applications base loc
Slide 24: Key attributes
Key  High brand recognition attributes ‘A significant  Strong high-speed reciprocating engines market presence’ knowhow  Significant R&D expertise  Growing solutions-led capability  Diverse routes to market Financial  Short-cycle order book  Double digit EBIT margin 24 Capital Markets Event -
Slide 25: Market profile
Revenue profile Market By type profile  Balanced product portfolio OE 66% diversified & volume applications Services ‘…with strong 34%  Strong market positions positions in data centre, yacht, mining, gov’tal diversified end By end market  Diversified end markets Marine markets’ Civil Nuclear 6%
Slide 26: Focused on higher value market segments
Focused on higher value market segments 5% unit share but 15% value share 1.2m units 442k units €27bn €13bn Industrial 25k units PowerGen €2bn Marine Addressable Markets and market shares in these slides are as internally defined along Serviceable Power Systems RRPS’ strategic objectives and c
Slide 27: Marine
Marine Profile Presence Outlook Products Main customer types Market growth drivers  S4000/S2000/S8000  OEMs (yacht, ferries etc.)  Global seaborne trade  Combined systems  Government  Fleet replacement  Diesel, Gas and Hybrid  Top 5 customer % sales: ~30% Applications  Very strong in Naval
Slide 28: Power Generation
Power Generation Profile Presence Outlook Products Main customer types Market growth drivers  S4000 / S2000 / S1600  OEMs  Energy demand  Diesel & Gas systems  Data centres / hospitals  Uninterruptable power  Industrial / energy plants requirements Applications  Top 5 customer % sales: 30% 
Slide 29: Industrial
Industrial Profile Presence Outlook Products Main customer types Market growth drivers  High speed diesel  OEMs (85%)  Infrastructure spending  Hybrid powerpack (rail)  Top 5 customer % sales: 40%  Emission regulations  Fleet renewals & Applications modernisation  Construction, Agriculture T
Slide 30: Defence & Other
Defence & Other Defence Civil Nuclear L’Orange Market growth drivers Market growth drivers  Remains an important  Defence spending & fleet  China & Russia partner following disposal replacements  Lifetime extension / efficiency  Partnership supporting pressures current and future products  €7b
Slide 31: Financials: 2017 actuals, 2018 outlook
2017 Actuals 2018 Outlook Combination of market recovery Continued revenue progress, but 2017/18 and cost improvements margin stable due to product mix; especially C&A pre-buy Financials Market recovery Positive outlook Commodity-related markets Oil & Gas onshore – US / China Construction & Agricult
Slide 33: The view on arrival, Dec 2016
The view on arrival Dec 2016 Positive Assess Improve  Strong market share in  Leadership culture  20% portfolio drives certain niches majority of profit  Service penetration  Engineering &  Sales footprint vs  Understanding of technology capability growth opportunities core business drivers 
Slide 34: Key focus 2017
Key focus 2017 Culture & leadership Sales & service Product & quality Cost & cash 34 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 35: RRPS2018 transformation
Strategic & structural: Performance push: RRPS2018 ‘adapting the way we work’ ‘funding the journey’ transformation 2017 actions 2018 Focus  Footprint consolidation/ factory  Ongoing product review utilisation  Sales & service campaigns  H1 vs H2 activity balance  Benefits from partnering  Focu
Slide 36: Product portfolio review
Actions completed Ongoing programme Transformation  Reprioritisation of engine roadmap  Continue modularisation  Establish ‘Product Management  Explore partnering for market Organisation’ access / cost improvements Product portfolio  Rationalisation of engine portfolio review  Reduction of com
Slide 38: Long term trends
Key market trends New solutions Regulations and green policy Integrated power solutions (Diesel, gas, bio, fuel cell, Long term hybrid, electrical) trends Alternative fuels and energy sources System intelligence Propulsion electrification (Integrated automation, remote, autonomous) Smart, connected
Slide 39: Implementing our key themes
Implementing our 3 key themes 01 02 03 Reshaping Life cycle Become solution An empowered core services provider business  Retain competitive  Leverage  Capability build up engine portfolio experience from in electrics & Civil Aerospace automation  Streamlining core business  Digital-enabled  E
Slide 40: Reshaping core: localisation of production
Greater China India Reshaping core Pune Localisation of Yulin production MTU Yuchai Power Force MTU Power Systems  JV targeting PowerGen and oil & gas  Targeting rail & PowerGen  Key product: S4000  Key product: S1600 for local markets 40 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 41: Life cycle services: digital enabled services
Life cycle services Digital enabled Key to services 2017 Achievements 2018 Focus adding value  Connected assets  Start Digital unit  Continuously connect our fleet  Advanced Analytics  Digital products launched  Leverage analytics to  Data-driven Value reduce costs Care Agreements  > 2,000 a
Slide 42: Services of the future
Life cycle services Services of the future 42 Capital Markets Event - June 2018 Customer Power Systems © 2018 Rolls-Royce VCA advert, 2018
Slide 43: Become solution provider
Power Systems Become E-Hybrid Customer consulting solution approach: solution provider Solution  Extend product Microgrid sales offering: integrate Capability build solutions capability up  Strengthen solution sales & consulting Project Integrated management capabilities propulsion  Increase focu
Slide 44: Medium term view
Medium 2017 term Medium term Avg. sales growth % above global GDP 3-5% view Operating margin 11.3% mid-teens ‘Where we aim to Non-diesel production as % total ~5% c.10-15% be on our Production in Asia <5% c.15-20% strategic journey’ OE / Services % split 66:34 60:40 Medium term figures indicative of
Slide 45: Summary
01 Reshaping Power Systems Summary 02 Transforming into solutions provider 03 Life cycle services 4 04 Strong medium term outlook 45 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 46: Harry Holt, Chief People Officer
Harry Holt Chief People Officer Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 48: Restructuring agenda
Agenda Restructuring Our approach Structure Culture Processes People Next steps 48 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 49: Our approach
Our approach  ‘Fit for purpose’ Structure  Fundamental change – not just People Culture structure  Focused headcount Processes reductions  De-risking Principles Outcomes • Pace Delivers improved • Simplicity sustainable returns • Efficiency Achieves • Empowerment ‘strategic resilience’ 49 Capita
Slide 50: Our approach: phases
2018 2019 2020 Design & mobilise Our approach Diagnostic Operational restructuring Diagnosis and Finalise restructuring plan planning Phase 1 Phase 2 Phase 3  Diagnostic phase Robust & rigorous approach: complete  Led by new executive leadership team  Leadership  Combined Rolls-Royce and Alvarez
Slide 51: Proposed reduction of 4,600 FTEs
Proposed reduction of 4,600 FTEs in non-manufacturing related headcount by early 2020 Our approach Proposed reductions 2018* 2020 Corporate Centre Head Office Group Business Services 4,300 ~100 ~2,600 Functional support in businesses 28,400 ~25,400 TOTAL TOTAL 32,700 ~28,100 51 Capital Markets Event
Slide 52: Functionally driven: our previous structure
Structure People Culture Functionally  Complex matrix driven  Poor agility Processes Our previous  Opaque accountability structure  Duplication Group Civil Aerospace Defence Power Systems Nuclear Marine Corporate HR, Finance, IT, HR, Finance, IT, HR, Finance, IT, HR, Finance, IT, HR, Finance, IT
Slide 53: Our new structure
Structure People Culture Business driven Processes Our new  Three focused structure businesses CUSTOMERS  Group Business Services providing Civil value-for-money Aerospace pooled transaction services  Supported by a Power lean head office Defence Systems GROUP BUSINESS SERVICES Lean HEAD OFFICE 5
Slide 54: Three empowered business units
Civil Aerospace Defence Power Systems Structure People Culture Processes Three empowered business units • Naval Marine • Submarines • Civil Nuclear  Simpler customer interface  P&L accountability  Control of support services required  Exploiting inter-business synergies  Faster, responsive, pr
Slide 55: Supporting empowered business units
Structure People Culture Processes GROUP • Transactional & professional services Supporting To achieve BUSINESS • Customer-supplier mindset empowered SERVICES  Accountability • Continuous improvement business units • Economies of scale  Cost control & ownership • Outsource, offshore & automate  F
Slide 56: Changing our culture
Structure People Culture Preserve: pride, loyalty, Processes consultative, inclusive, innovative Changing Achieved through our culture our: Revels in Simplicity &  Changing complexity clarity behaviours ‘Gold plating’ and Agreed service  Performance & duplication levels and focus talent management
Slide 57: Simplifying our processes
Structure People Culture Processes Stop Simplify Improve Automate Simplifying our processes 100s of group business functional processes Annual budgeting process Rolls-Royce Management System Operational processes Indirect procurement 57 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 58: Our people
Structure People Culture Processes Leadership Capabilities • New model Preserve: Our people Our success • Deep functional & depends on having: • New expectations technical expertise • Innovation  The right people • New learning & Build: training • Business acumen  With the right skills • Programme
Slide 59: Next steps
2018 2019 2020 Design & mobilise Next steps Diagnostic Operational restructuring Finalise restructuring plan Phase 1 Phase 2 Phase 3 by end 2018 by mid 2020 2020 onwards • One third of • Two thirds of proposed reductions • Continuous proposed • Phase 2 savings in place improvement reductions to new
Slide 60: Conclusions
Conclusions  A fundamental change to structure, culture, people and process  By stopping, simplifying, improving and automating work, we require less people  Better results today; better prepared for the future 60 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 61: Stephen Daintith, Chief Financial Officer
Stephen Daintith Chief Financial Officer Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 63: Delivering the returns
Agenda for today Delivering the returns “Coming out of the Key drivers of increased returns investment cycle, now is the time to deliver the returns” Capital allocation priorities Measuring our success – KPIs  Cash flow return on invested capital  Cash flow per share 63 Capital Markets Event - Jun
Slide 64: Key drivers of increased returns
Key drivers of increased returns 64 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 65: Three key drivers of increased returns
Increased “underpinned by significantly increased returns returns across our 3 businesses” Three key drivers 01 02 03 Reduced OE Improved Bending the cash deficit per aftermarket fixed cost engine cash margin curve Improved CROIC & CPS 65 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 66: OE cash deficit reduction
01 02 03 OE cash deficit reduction Three key drivers Key factors: “Trent XWB-84 OE  Pricing - Sourcing will be break-even - Engineering change by 2020”  Cost - Commercial terms / partnering  Mix - Manufacturing method 66 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 67: OE cash deficit: sourcing and engineering change
Sourcing Engineering change Transfer to lower cost countries Move to slim-lining removes cost 01 02 03  Trent 7000  Trent XWB-97 OE cash deficit  Transfer of pipe supply from  Significant reduction in forging size, reduction Spain into Mexico weight and cost on front fan case Rigorous process to
Slide 68: OE cash deficit: commercial terms and manufacture
Commercial terms Method of and partnering manufacture 01 02 03 Partnering with suppliers to drive Strategic investment in internal OE cash deficit improved terms manufacturing capability reduction  Trent XWB-84 and -97  Across Trent portfolio: Trent XWB-84 and -97, Trent 1000 TEN and Trent 7000 Ta
Slide 69: OE cash deficit reduction to 2022
Widebody installed deliveries Widebody avg loss per engine 01 02 03 OE cash deficit c.600 (£0.4m) reduction 444 • £500m benefit to cash flow by 2022 • Equally driven by price and cost (£1.6m) £1.6m 2017 2022 2017 2022 £0.4m Reduce average cash deficit from £1.6m to £0.4m by 2022, 2017 Cost Price 202
Slide 70: Aftermarket cash margin: key factors
01 02 03 Aftermarket cash margin “Aftermarket cash margin – one of the Key factors: largest drivers of growth”  Installed base growth  Flying hours  Shop visits  In-service issues 70 Capital Markets Event - June 2018  RRSP programme shares © 2018 Rolls-Royce
Slide 71: Aftermarket cash margin: installed base
Widebody active installed engine base 01 02 03 Growth underpinned c.6,500 Aftermarket by widebody order cash margin book 4,409 • Widebody installed In In On production service order fleet should rise from Trent 700 1,606 94 4,409 to c.6,500 Trent 7000 - 428 engines by 2022 Trent XWB 344 1,346 • Shou
Slide 72: Aftermarket cash margin: shop visits
Widebody LTSA Widebody LTSA major shop visits check & repair visits 01 02 03 Aftermarket cash margin c.650 Drivers out to 2022 350 c.350 • Cash costs: shop 240 visit growth as fleet matures • Trent 1000 / 900 in- 2017 2022 2017* 2022 service costs will fall *Includes Trent 1000/900 exceptional C&R v
Slide 73: Aftermarket cash margin to exceed £2bn
Widebody aftermarket cash margin >£2bn 01 02 03 Aftermarket £1.3bn ~6,500 cash margin engines In-service fleet 4,409 Ambition engines ~20m EFHs Aftermarket cash Invoiced EFH 12.6m EFHs margin to exceed £2bn by 2022 Major refurbs 240 SVs ~650 SVs Check & repair 350 C&R Other AM costs £400m ~350 C&R P
Slide 74: Bending the cost curve
01 02 03 Bending the cost curve Three key drivers “coming out of the Key factors: investment cycle”  Restructuring  Investment cycle  Capacity built-in 74 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 75: Fixed cost components 2017
01 02 03 Bending the Fixed cost curve, 4 components (2017): cost curve C&A costs £1,124m Three key drivers Net R&D cash spend £1,035m “£3.1bn of fixed costs in 2017” Certification & participation costs £160m Capital expenditure £764m Total £3,083m 75 Capital Markets Event - June 2018 © 2018 Rolls-Ro
Slide 76: Restructuring benefits and implementation costs
Benefits Implementation £400m £500m 01 02 03 annualised net savings cash costs Bending the cost curve  Savings – £400m net saving run  Costs – £500m cash costs to Restructuring rate by end of 2020 implement • Targets delivery of − Redundancy costs net £400m reduction  Reduced fixed costs & headco
Slide 77: Commercial & administrative costs
Commercial & admin (C&A) costs 01 02 03 Since 2010 C&A has been between Bending the 7-9% of sales cost curve 1,276 1,298 1,323 C&A 1,158 1,124 Reduce costs to 1,097 1,069 c.5% of sales Restructuring a key 1,004 enabler to deliver reduction in annual C&A costs 2010* 2011* 2012* 2013 2014 2015 2016 20
Slide 78: Net R&D, certification and participation spend
Net R&D, certification & participation spend 6 new civil aero engines 01 02 03 introduced over past decade Civil NPI been on average Bending the 50% of group R&D spend cost curve Up from 1,195 £700m to £1.2bn R&D (5% to 9% of sales) 1,091 978 • Wave of new civil 931 904 engines been funded. 704 731
Slide 79: Group capex
Group capex 01 02 03 Bending the 60% growth cost curve over last 7 years More than doubling of Civil Capex to decline to Capex large OE engine volumes 764 c.4% of sales 668 • 60% increase since 611 639 687 627 2010, up from 3% to 484 494 6% of sales. Funded facility renewal & production growth • Spe
Slide 80: Total fixed and investment costs
Total Fixed & Investment Costs 01 02 03 (Net R&D, Certification, Capex and C&A) Bending the cost curve 3,083 2,941 2,876 In summary 2,617 2,707 2,715 2,402 • Fixed / investment 2,284 costs risen materially since 2010 from 17% to 23% of sales 2010* 2011* 2012* 2013 2014 2015 2016 2017 Ambition Net R&
Slide 81: Fixed cost reduction conclusion
Total Fixed & Investment Costs - Conclusion 01 02 03 Bending the Reduce fixed / investment Reduce from cost curve costs by around 23% to c.15% £500m p.a. of sales • Reduction in fixed costs to drive % of sales 2017 Ambition improved returns C&A costs 8% c.5% Net R&D / certification & participation 9
Slide 82: Increased returns
Increased returns Three key drivers Augmented by 01 02 03 significantly improved Reduced OE Improved Bending the performances in Power cash deficit per aftermarket fixed cost Systems & Defence engine cash margin curve Working capital - a key consideration Improved CROIC & CPS 82 Capital Markets Even
Slide 84: Capital allocation priorities
01 02 Capital Strong balance sheet: Fund organic allocation improve credit rating Investment: priorities drive growth & Four key technology leadership priorities 03 04 Payment to M&A: shareholders: disciplined & selective increase dividend as FCF grows 84 Capital Markets Event - June 2018 © 2018 Rol
Slide 85: Strong balance sheet
Customer confidence Competitive position Hedging 01 Strong  Long term investment cycles for Civil &  Credit rating alignment with airframe OEMs  $39bn FX hedge book with 10 year duration balance Defence programmes desirable (single ‘A’)  Financial counterparty sheet  Multi-year service  Suppor
Slide 86: Fund organic investment: new internal process
New internal process 02 Fund  Increased rigour on all R&D and Capex organic investment  Projects prioritised in line with strategic intents and target rate of return  Suite of metrics provide a balanced appraisal • More rigorous internal processes Max IRR NPV CROIC negative • Return metrics cash
Slide 87: Washington Disc Facility
 Washington Disc Facility £100m investment for critical disc components utilising High Performance Disc Manufacturing (HPDM) technology  Replaced previous facility - incapable of moving to modern disc manufacture 02 Fund process or handling required volume increases organic investment Delivered NP
Slide 88: New Engine Controls Facility
 New Engine Controls Facility – Investment cost of £84m  Construction of new facility in Birmingham - replace aging facilities and enabler of volume growth 02 Fund organic investment £35m increase in 2 year NPV reduced by costs slip to project £32m to • Lessons learnt breakeven timeline • What did
Slide 89: Payment to shareholders
Payment to shareholders (pence) 03 Payment to 19.5 22.0 23.1 shareholders 14.3 15.0 16.0 17.5 16.4 11.7 11.7 Committed to restoring 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 shareholder payments to an appropriate level FCF /shareholder payment cover (ratio) 2.7 2.2 2.5x 1.9 1.8 1.7 1.1 0.4 0
Slide 90: Mergers & Acquisitions
04 Mergers & Key criteria Acquisitions 1. Alignment with strategy 2. Synergy potential Key criteria to assess 3. Value creation – aligned with 15% CROIC Ambition acquisitions & 4. Cultural fit disposals 5. Balance sheet resilience Technology Portfolio Growth Focus on distinct Focus on activities wit
Slide 91: Measuring our success - KPIs
Measuring our success - KPIs  CROIC  CPS 91 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 92: Measuring our returns
Measuring our returns  Cash as the key indicator of economic performance Focus on two core  Drive a cash flow culture across all businesses cash flow based measures: • Cash flow per share (CPS) CROIC CPS • Cash return on  Key to long-term incentive plans  Good measure of capital invested capital
Slide 93: Cash return on invested capital
Cash return on invested A key part of our entire capital allocation framework capital  Cash flow based CROIC = Annual cash return ÷  Focuses business on both cash generation & asset efficiency invested capital  Used to harness optimum value across the portfolio 93 Capital Markets Event - June 201
Slide 94: CROIC approach
Annual cash return Invested capital  Free cash flow adjusted to remove: CROIC approach  Net R&D spend  15 year historic cum net R&D investment  PP&E capex & software  PP&E & software (at cost)  Participation / certification costs  Participation / cert costs (at cost) • Anchored in HOLT  Othe
Slide 95: Cash return on invested capital: civil widebody cash flows
Typical Civil Aerospace widebody cash flows Cash return In-service on invested Cash generation capital • In-year CROIC can be distorted by R&D businesses with long OE Build and Delivery duration returns i.e. Cash consumption Civil • Shorter cycle businesses deliver Illustrative example – 2,000 engin
Slide 96: Annual CROIC
Cash return Annual CROIC on invested capital 17% 16% 14% Improved future CROIC will reflect: 11% 9% • Coming out of the investment cycle • Improved cost efficiency 2013 2014 2015 2016 2017 • Greater investment discipline Mid-term Ambition: 96 Capital Markets Event - June 2018 © 2018 Rolls-Royce Annu
Slide 97: Embedding CROIC in planning
Cash return on invested How we will embed CROIC in our planning: capital  Improve returns on current invested capital A key lens for making - Improve asset efficiency (WC, inventory etc.) our investment - Increase cash generation decisions  Ensure returns on new investments at least achieve return
Slide 98: Cash flow per share
CPS Cash flow per share Three key drivers: Underlying FCF ÷ no. 41.9 1. Reduced OE cash deficit of shares 38.7 2. Improved AM cash margin 3. Bending the cost curve • “delivered by the 31.4 29.6 three key drivers of increased returns” • “underpinned by 13.6 14.9 three high 9.5 5.5 performing 2010 201
Slide 99: Mid-term ambition
Measuring our returns Focus on two core CPS CROIC cash flow based measures: Mid-term • Cash flow per share (CPS) ambition • Cash return on Exceed 15% invested capital £1 per share through cycle (CROIC) 99 Capital Markets Event - June 2018 © 2018 Rolls-Royce
Slide 102: Execution: four must do's
Execution Four must do’s 01 Drive out unnecessary costs 02 Remove complex & duplicative processes 03 Develop a real performance culture 102 Capital Markets Event - June 2018 © 2018 Rolls-Royce 04 Ownership behaviour
Slide 103: Key messages
 A fundamental restructuring  Empowered businesses, very small head office Key messages  Freedom within a framework  Release benefit of past investments  Rigorous investment process  A continuous journey The leading industrial technology company 103 Capital Markets Event - June 2018 © 2018 Rol
Slide 105: Global presence
Global presence Civil Nuclear USA Williamson, Pittsburgh, Brattleboro, Warrenville, Chattanooga, Huntsville, Canada United Kingdom Port Elgin, Peterborough Gateshead, Derby, Warrington, Barnwood, London France China Czech Republic 105i Capital Markets Event - June 2018 Grenoble, Mondragon Shenzen, B
Slide 106: Key product categories
S1000 /  Jointly developed with Daimler 1500 (LPR)  Exclusive sales rights for off-highway  High volume (~12k units p.a.) to support worldwide distribution channel Key product S1000 categories S1600 / 2000 /  Medium volume, strong margins 4000  Modular multi-application products across many end
Slide 107: Power Systems OE market shares (2017)
Marine PowerGen Industrial Power Systems Served market Served market Served market OE market share % share % share % shares (2017) Continuous Construction Offshore 15-20% 5-10% 5-10% Generation & Industrial Standardised Merchant 15-20% back up 10-15% Agriculture >20% Mission Yacht >25% critical 15-2
Slide 108: Expanding product breadth
Alternative fuels Hybrid MicroGrids Key drivers: Key drivers: Key drivers: Expanding  Higher focus on emissions  Emission regulation  Focus on emissions and therefore renewables product  Increasing availability & low price of gas  Focus on operating cost  Decentralisation of energy  Demand fo
Slide 109: Developing leading industrial technology
Capability  Engineers: 1,300 FTE Become  Patents: >1600 active solution provider Focus  Engines and Subsystems Developing  Modularisation leading industrial  Hybridisation & Electrification technology  Digitalisation 2012-17 R&D spend  MicroGrid & Solution consulting R&D as % sales 7.0% 6.5%
Slide 110: Growing LTSA capabilities
Hitachi Rail Lumwana trucks Growing  UK‘s Intercity Express Programme  Lumwana copper mine in LTSA Zambia  PowerPacks for 122 Hitachi train sets capabilities  27.5 year duration; c.20,000 hours  Customer: mine operator Barrick Gold Corp  Full responsibility for availability and  13-year servi
Slide 111: New product development: Yacht Hybrid
Product characteristics Target performance New product  Combination of different sources  ~10 hours silent power supply development: of energy: Gas / Diesel genset;  600kW electric drive (12kn) battery Yacht Hybrid  Enhanced battery provision  Emissions compliant  Increased performance through
Slide 112: Safe harbour statement
Safe harbour This announcement contains certain forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or statement current facts. In particular, all statements that express forecasts, expectations and projections with re

Rolls-Royce Holdings — Investor Day (June 2018) on 6ix

Rolls-Royce — Investor Day (June 2018)

Slide 1: Capital Markets Event

Slide 2: Warren East, Chief Executive

Slide 3: Safety notices

Slide 4: Agenda for today

Slide 5: Key messages

Slide 6: Trent 1000 update

Slide 7: Trent 1000 update: financial impact

Slide 8: Introduction

Slide 9: Initial transformation completed

Slide 10: Today we're at a pivotal moment for Rolls-Royce

Slide 11: Restructuring

Slide 12: Longer term context

Slide 13: Defining our ambitions

Slide 14: Our resources

Slide 15: Structure to enable change

Slide 16: Accelerating culture change

Slide 17: Will improve productivity and efficiency

Slide 18: What success will look like

Slide 19: Andreas Schell, CEO Rolls-Royce Power Systems

Slide 20: Power Systems

Slide 21: Power Systems agenda

Slide 22: Overview

Slide 23: Operational profile

Slide 24: Key attributes

Slide 25: Market profile

Slide 26: Focused on higher value market segments

Slide 27: Marine

Slide 28: Power Generation

Slide 29: Industrial

Slide 30: Defence & Other

Slide 31: Financials: 2017 actuals, 2018 outlook

Slide 32: Driving Change

Slide 33: The view on arrival, Dec 2016

Slide 34: Key focus 2017

Slide 35: RRPS2018 transformation

Slide 36: Product portfolio review

Slide 37: Growth strategy

Slide 38: Long term trends

Slide 39: Implementing our key themes

Slide 40: Reshaping core: localisation of production

Slide 41: Life cycle services: digital enabled services

Slide 42: Services of the future

Slide 43: Become solution provider

Slide 44: Medium term view

Slide 45: Summary

Slide 46: Harry Holt, Chief People Officer

Slide 47: Restructuring

Slide 48: Restructuring agenda

Slide 49: Our approach

Slide 50: Our approach: phases

Slide 51: Proposed reduction of 4,600 FTEs

Slide 52: Functionally driven: our previous structure

Slide 53: Our new structure

Slide 54: Three empowered business units

Slide 55: Supporting empowered business units

Slide 56: Changing our culture

Slide 57: Simplifying our processes

Slide 58: Our people

Slide 59: Next steps

Slide 60: Conclusions

Slide 61: Stephen Daintith, Chief Financial Officer

Slide 62: Delivering the returns

Slide 63: Delivering the returns

Slide 64: Key drivers of increased returns

Slide 65: Three key drivers of increased returns

Slide 66: OE cash deficit reduction

Slide 67: OE cash deficit: sourcing and engineering change

Slide 68: OE cash deficit: commercial terms and manufacture

Slide 69: OE cash deficit reduction to 2022

Slide 70: Aftermarket cash margin: key factors

Slide 71: Aftermarket cash margin: installed base

Slide 72: Aftermarket cash margin: shop visits

Slide 73: Aftermarket cash margin to exceed £2bn

Slide 74: Bending the cost curve

Slide 75: Fixed cost components 2017

Slide 76: Restructuring benefits and implementation costs

Slide 77: Commercial & administrative costs

Slide 78: Net R&D, certification and participation spend

Slide 79: Group capex